Question: Consider the universal valuation formula: Company Value = Cash Flow / (Discount Rate Cash Flow Growth Rate), where the Cash Flow Growth Rate must be

Consider the universal valuation formula: Company Value = Cash Flow / (Discount Rate Cash Flow Growth Rate), where the Cash Flow Growth Rate must be less than the Discount Rate.

Which of the following statements about this formula is NOT true?

A) If a companys cash flows are growing more quickly, then, according to this formula, investors are willing to pay more for the company.

B) This formula means that if the companys risk and potential returns are higher, the company is also worth more to investors.

C) In real life, valuation is more complicated than this formula suggests because companies cash flows, cash flow growth rates, and discount rates change and they may take years or decades to stabilize.

D) This formula means that if the expected annualized returns of other, similar companies the market decrease, and nothing else changes, then this company becomes more valuable.

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